The Baltic Dry Index

We’re always looking for indicators of the economic future. One rather good indicator is called the Baltic Dry Index. N.C. State University economist Mike Walden explains what this simple index is.

“It’s an index of the cost or price of moving over the world’s ocean so-called dry commodities — things like grains and coal and iron ore — and in comparison to wet commodities like oil. And the idea is that the price of shipping those commodities will go up when the economy is good, because there’s more cargo out there to ship. There’s a limited number of ships, and so the cost of shipping will increase. So we should see that index go up when times are good.

“Conversely when the economy is bad, we should see that price go down as shipping cargos around the world slackens.

“It’s actually performed very well as a leading indicator. For example, it started to drop in early 2007, which was about nine months before the recession officially began, and then it also started the trend upward about four or five months before the recession ended.

“Now recently, recently the Baltic Index has given economists reason to worry, because it has been trending downward for the past year. And although perhaps not signaling a recession, it is signaling slow economic growth. “